Proper Definition of Active Asset Appreciation of Separate Property with Stocks?

[marriedwithfear]

For openers Florida is an equitable division state whereas yours is community property state.

Secondly the decision in Mathers v. Brown is governed by a Florida statute that defines a marital asset as: "the enhancement in value and appreciation of nonmarital assets resulting . . . . from the efforts of either party during the marriage . . . " (F. S. Section 61.0785 (6) (b).

California does not have a comparable statute. There the statute simply states that a spouse's separate property includes the rents, issues and profits from that that spouse's separate property.

Also, I'll bet you were unable to find a California court decision treating with the appreciated value of a spouse's separate stock portfolio.

Furthermore, and taking for granted that the community estate does include active appreciation of a spouses separate property, the facts in the Mathers case provide perhaps stronger evidence of the title holder's labor and skill contributing to that increased value than in your instance. As it wasn't so much the number of trades of the husband's portfolio, but the variety of the investments and different species, foreign stocks, money markets, etc., that influenced the decision in Mathers. Plus, the husband conceded that his active and skillful efforts in managing the portfolio largely contributed to its appreciation. (Notable that increase was awarded 64% to the husband.)

Additionally, under Florida law once the appreciation in value was established, it become the burden of the husband to prove that it was due to market conditions alone. This he failed to do and it was so found by the trial court and affirmed on the appeal.

Also as far as I know there is a dearth of California decisions on this issue. And I recall reading such in a rather exhaustive treatise sometime back. Perhaps someone in here can lead us to a specific case in California. Until persuaded otherwise I lean towards placing the burden of proof on the non titled spouse.

Lastly with regard to the S&P index. Any discussion of the index in Mathers is pure dictum because it was not a factor in the decision. Other than that the husband was unable to connect his constantantly evolving folio with it or any recognized dependable such index.

Probably the best written answer I've seen on the topic. I couldn't find anything setting a legal precedent in California. Yes, I couldn't find anything, but I'm a layman though.

Does that mean that when filing taxes and paying the tax liability, a separate return should do? My understanding it doesn't transmute separate property.

Also, it sounds like that unless written to do so, separate property generally cannot be transmuted to community property?

 

[LdiJ]

Probably the best written answer I've seen on the topic. I couldn't find anything setting a legal precedent in California. Yes, I couldn't find anything, but I'm a layman though.

Does that mean that when filing taxes and paying the tax liability, a separate return should do? My understanding it doesn't transmute separate property.

Also, it sounds like that unless written to do so, separate property generally cannot be transmuted to community property?

Filing a joint tax return does NOT impact separate property. Plus, when you file separate tax returns in a community property state, you much each claim 1/2 of the other's income. Therefore it all ends up getting mixed together anyway.

 

[marriedwithfear]

Filing a joint tax return does NOT impact separate property. Plus, when you file separate tax returns in a community property state, you much each claim 1/2 of the other's income. Therefore it all ends up getting mixed together anyway.

Thanks for the answer! This guy (link: https://www.forbes.com/sites/robertwood/2012/05/20/taxing-mr-and-mrs-zuckerberg) states regarding Mark Zuckerberg getting married:

If [he] hopes to keep assets separate--more about that below--he’s better off filing separately...
separate property can be transmuted into community property not only by agreement but by actions too.

The guy is a tax attorney and not family law, so maybe he doesn't know what he's talking about or revealing full details.

 

[LdiJ]

Thanks for the answer! This guy (link: https://www.forbes.com/sites/robertwood/2012/05/20/taxing-mr-and-mrs-zuckerberg) states regarding Mark Zuckerberg getting married:



The guy is a tax attorney and not family law, so maybe he doesn't know what he's talking about or revealing full details.

I am sorry, but I simply do not agree with that. On top of that, it would cost the average family way too much in additional tax to be a smart thing to do. Now, maybe at the Zuckerberg level it would be a different story, but not at your level.

 

[latigo]

. . . . . The guy is a tax attorney and not family law, so maybe he doesn't know what he's talking about or revealing full details.

It may interest you to know that LdiJ is neither a tax attorney nor a family law attorney. She bears no legal credentials whatsoever.

 

[LdiJ]

It may interest you to know that LdiJ is neither a tax attorney nor a family law attorney. She bears no legal credentials whatsoever.

Nope, I am not an attorney. However, I AM a tax professional for going on 35 years now. So, tax and solving tax problems is what I do for a living, year round.

 

[HRZ]

I am a bit puzzled about what may be missing...why is OP working thru issues of separate property for say $ 400,000 stock if there are no children...is the marriage in trouble...

 

[marriedwithfear]

I am a bit puzzled about what may be missing...why is OP working thru issues of separate property for say $ 400,000 stock if there are no children...is the marriage in trouble...

No, marriage is not in trouble. I do want to keep separate property as separate property. And our community property as community property that we build together. Who knows if we run into issues in the future.

 

[marriedwithfear]

For openers Florida is an equitable division state whereas yours is community property state.

Secondly the decision in Mathers v. Brown is governed by a Florida statute that defines a marital asset as: "the enhancement in value and appreciation of nonmarital assets resulting . . . . from the efforts of either party during the marriage . . . " (F. S. Section 61.0785 (6) (b).

California does not have a comparable statute. There the statute simply states that a spouse's separate property includes the rents, issues and profits from that that spouse's separate property.

Also, I'll bet you were unable to find a California court decision treating with the appreciated value of a spouse's separate stock portfolio.

Furthermore, and taking for granted that the community estate does include active appreciation of a spouses separate property, the facts in the Mathers case provide perhaps stronger evidence of the title holder's labor and skill contributing to that increased value than in your instance. As it wasn't so much the number of trades of the husband's portfolio, but the variety of the investments and different species, foreign stocks, money markets, etc., that influenced the decision in Mathers. Plus, the husband conceded that his active and skillful efforts in managing the portfolio largely contributed to its appreciation. (Notable that increase was awarded 64% to the husband.)

Additionally, under Florida law once the appreciation in value was established, it become the burden of the husband to prove that it was due to market conditions alone. This he failed to do and it was so found by the trial court and affirmed on the appeal.

Also as far as I know there is a dearth of California decisions on this issue. And I recall reading such in a rather exhaustive treatise sometime back. Perhaps someone in here can lead us to a specific case in California. Until persuaded otherwise I lean towards placing the burden of proof on the non titled spouse.

Lastly with regard to the S&P index. Any discussion of the index in Mathers is pure dictum because it was not a factor in the decision. Other than that the husband was unable to connect his constantantly evolving folio with it or any recognized dependable such index.

Actually, there seems to be some recent case law in California, Marriage of Brandes (http://rogerbernhardt.com/index.php/ceb-columns/390-his-hers-or-theirs-brandes-marriage), which the husband's investment business was separate property, but some community interest. It did not discuss a personal stock portfolio, it seems to have It discusses two methods of accounting for appreciation of separate asset: Pereira and Van Camp.

Pereira accounting is used when the increase in value of the separate property business is primarily the result of community labor. In this case, the majority of the increase is attributable to the spouse and not outside market forces or events. Under Pereira, the court first determines the value of the business at the beginning of the marriage and then gives it a fair rate of return of the course of the marriage. The spouse’s separate property is given the initial value of the asset plus the fair rate of return. The remainder of the value is community property and distributed as such.

Van Camp accounting is used when the increase in the value of a business is primarily the result of the unique nature of the particular asset. Using Van Camp the court determines a fair salary for the community labor that contributed to the business. That amount is multiplied by the years of marriage. Any salary already received and amounts paid for community expenses are deducted from the salary amount. The rest of the value is community property and distributed as such.